When Crisis Hits the Platform Economy: The Effects on Supply, Demand, and Spillovers

38 Pages Posted: 29 Nov 2023

See all articles by Sungtak Hong

Sungtak Hong

Bocconi University

Jikyung (Jeanne) Kim

Fundación Instituto de Empresa, S.L. - IE Business School

Prasad Vana

Tuck School of Business at Dartmouth

Date Written: November 1, 2023

Abstract

When digital platforms undergo crises due to scandals or product/service failures, the parties at stake include the two sides of “customers" that transact through the platform: the supply and the demand side. We investigate whether and how the two sides respond to a platform crisis and whether the impact spills over to a rival platform. Our empirical context focuses on the scandal surrounding Kickstarter in 2019 when it was accused of union busting. To establish the causality, we use a difference-in-differences approach using two separate control groups and show consistently that there was a decrease in the supply of projects on Kickstarter post-crisis. The drop in the probability of a project being active ranges from 5.53% to 21.02%, translating to the platform's revenue loss between $0.31 million and $1.17 million. The demand-side reaction is not as severe, showing as much or more backers’ support and pledged amounts to the active projects post-crisis. Indiegogo, Kickstarter's main rival, experienced a negative spillover on the supply side. Our analysis of creator heterogeneity informs that cultural project creators were more likely to decrease participating on Kickstarter after the crisis but less so on Indiegogo. We highlight implications for managers of platforms, supply-side agents, and policymakers.

Keywords: Firm crises, crowdfunding, digital platforms, two-sided markets

Suggested Citation

Hong, Sungtak and Kim, Jikyung (Jeanne) and Vana, Prasad, When Crisis Hits the Platform Economy: The Effects on Supply, Demand, and Spillovers (November 1, 2023). Available at SSRN: https://ssrn.com/abstract=4622436 or http://dx.doi.org/10.2139/ssrn.4622436

Sungtak Hong

Bocconi University ( email )

Via Rontgen 1
Milan, 20136
Italy

Jikyung (Jeanne) Kim

Fundación Instituto de Empresa, S.L. - IE Business School ( email )

Prasad Vana (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.prasadvana.com

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